E104: FTX collapse with Coinbase CEO Brian Armstrong + election results, macro update & more

In the upcoming 2022 Georgia Senate runoff election (Warnock vs. Walker), Republicans will lose the runoff if Donald Trump continues his post‑2020-election style 'antics' and public behavior through the period leading up to the runoff.

“I think we're going to lose the Georgia runoff again if Trump continues with these antics.” View on YouTube

Following the November 2022 collapse of FTX, additional crypto firms will experience financial distress or failure due to contagion effects (e.g., exposure to FTX/Alameda or leveraged crypto portfolios), beyond those already known at the time of this recording.

“Yeah. So I do think there is some contagion risk here.” View on YouTube

If U.S. regulators (SEC and DOJ) seriously pursue the FTT/FTX case, they will subsequently open investigations into other crypto tokens and token sales, including those involving prominent Silicon Valley venture firms, over the following few years.

“if the SEC is really and the DOJ is really going to take this FTT token issue seriously, and what happened to FTX, they're going to start to look at a bunch of other tokens and token sales, and you're going to end up looking at some very well-known venture firms inside of Silicon Valley.” View on YouTube

The FTX/FTT collapse in late 2022 will mark a structural turning point that leads to a major reduction in speculative venture-backed token issuance going forward.

“I have a feeling that this is going to be the turning point in all of that token.” View on YouTube

Over the next few years, venture capital will largely stop investing directly in tradable tokens and will instead focus on equity in companies, while existing and new tokens will become subject to much heavier regulation.

“I think venture investing in the tokens is going to end. Investing in the corporation is going to begin. And any of the tokens are going to be super regulated.” View on YouTube

Because of the FTX scandal, U.S. policy momentum toward broadening ordinary investors’ access to private/crypto markets via new accreditation paths will be delayed by roughly a decade or longer.

“The problem is, when you have guys like this, it sets that desire back by a decade, if not more.” View on YouTube

In response to the FTX collapse, top-level U.S. policymakers and regulators will move quickly (within months) to impose or push for much stricter oversight and enforcement actions in the crypto sector.

“this is going to go to the utmost level and it's going to have the most scrutiny, and they're going to act really quickly. It is going to.” View on YouTube

From late 2022, macro conditions (disinflation, policy gridlock, China reopening, progress in Ukraine, etc.) create upside for risk assets over the subsequent 6–9 months relative to what markets were then pricing in.

“these seven things are macro level things that affect everybody. And I think if you take them together, what it says is that, wow, there's there's the potential for a lot of great positive developments over the next 6 or 9 months. And I don't think that that was adequately priced in the market.” View on YouTube

From late 2022, macro and market conditions will remain choppy for roughly 2–4 more quarters (through about late 2023) before clear improvement.

“I think consensus we have here is, is that we're in the end game now, maybe, what, two quarters, three quarters, four quarters of choppiness?” View on YouTube

Startup funding conditions will remain difficult enough that companies should assume they will need sufficient cash runway to survive without new financing until at least Q1 2025.

“I've been telling all of our startups that you need to plan to have money through the first quarter of 2025. You must.” View on YouTube

From November 2022, U.S. inflation will experience a renewed uptick within about six months, prompting the Federal Reserve to raise the federal funds rate to roughly 5.5% and then hold it near that level until around mid-2024.

“Sharpe's think that inflation will come back at some point in the next six months. That will keep the Fed's foot on the gas. Maybe it's 2 or 3 more 50 basis point hikes. The point is Jason, you could be at five and a half. Again we said this last week we're going to get to a point that's probably higher than what people expect. That's probably around five and a half. And we'll stay there longer than people want. That's probably through the middle part of 24.” View on YouTube

Public equity markets, particularly in tech/growth, are likely to begin a sustained rebound in the second half of 2024, with venture investors’ deployment sentiment improving only after roughly six months of demonstrably better macro and market data.

“I think the market can start to rebound in the second half of 24, but if you're a company, you need to balance and plan for the first quarter of 25 because, you know, again, most venture investors are going to want to see six months of data on the ground that things are better before their sentiment changes.” View on YouTube

Of the roughly $1 trillion invested in venture capital from 2018 through 2022, approximately $500 billion from those vintages—and around $600–700 billion including older vintages—will ultimately be lost (i.e., not returned to investors) as the cycle plays out.

“what it basically tells you is about $500 billion of that trillion from 1819, 20, 21 and 22 is going to be destroyed.... we're talking about a 600 or $700 billion destruction of paid in capital.” View on YouTube